Wait, Maybe The Realtors Aren't Wrong This Time

Ever since Larry Yun of the
National Association of Realtors complained about new appraisal
regulations, and their role in slowing down the housing market,
there's been talk about whether or not the NAR is merely against
"honest" appraisals.

Barry Ritholtz, who is the master of issuing beat downs to
adversaries that he regards as dishonest, has been all over the
story, and
Yesterday produced documents about the NAR's and the National
Association of Mortgage Broker's battle against appraisal reform.

We linked to him, and said the NAR was engaged in an
"appalling" fight against appraisal reform. Well, anyway,
Barry's got the NAR in his jaws, and today he has another
post urging readers to read the organizations' "dastardly"
lobbying letters.

But let's step back. Were we too quick to say that the NAR was
appalling? Maybe. For one thing, this is what lobbying
organizations do. They lobby. But more importantly, just because
a new law or regulations claims it'll reform an industry in a
positive way, it doesn't mean it actually will. What matters is
not the intent or the title of the law. What matters is the
content of the law, and just because regulators say they're
introducing "reform" it doesn't mean we all have to roll over and
support the law, just because we support reform. Reform isn't any
good unless it's good reform.

And as it turns out, there are plenty of legitimate concerns
about the new reforms, including the establishment of Appraisal
Management Companies -- unregulated third-party appraisal mills.

BusinessWeek wrote about them earlier this year, nothing that
some of these AMCs are just former subprime lenders in new
clothing:

Take NovaStar Financial (NFI) in Kansas City, Mo. A large
subprime lender during the housing boom, NovaStar was disciplined
by three states—Massachusetts, Nevada, and Washington—for such
infractions as employing unlicensed brokers and charging unlawful
fees. Without admitting wrongdoing, the company paid $5.1 million
in 2007 to settle similar allegations in a class action brought
on behalf of borrowers. After its mortgage business collapsed,
NovaStar morphed into an AMC last year by acquiring another
company and renaming it StreetLinks National Appraisal Services.

Now, unless you think that they've got totally new DNA, or have
seen the light about an honest, straightforward housing market,
your neck hairs should instantly stand up.

There are other issues, too, such as the ones in the Jonathan Miller post
we linked to this morning. Third-party appraisers, who mainly
compete on price, and who don't necessarily know the area, won't
be helpful to the housing market.

Remember, we're not looking for expensive housing or cheap
housing, or a housing market with high velocity. The goal should
be a well-run market, with as few distortions as possible. And as
long as mortgages require a third-party appraisal, then you want
this area to be run well.

Just because the old system was bad, and the new regulations are
couched as "reform" doesn't mean you've arrived at a much better
place.

And organizations who lobby aren't necessarily appalling for
doing their job, even if it is really easy to kidney-punch the
NAR.